Embracing digital technology to transform finance

Exclusive FDE roundtable breakfast on Finance Transformation Success, and the increasingly influential role being played by digital technologies

As we all know, we are living in exciting and challenging times, where technology fuelled by data is creating new opportunities to unlock value through speed, control and insight, as well as creating opportunities to completely reimagine business models.

Therefore, at this exclusive FDE breakfast briefing, we will be hearing from finance leaders across different industries that will be sharing their experiences on the key enablers, as well as pitfalls to avoid, when undertaking any kind of finance transformation journey.

The session will be moderated by Brian Montgomery, Finance Director EMEA, APJ & Canada at Workday. Brian is responsible for the accounting and controllership functions for Workday in EMEA, APJ and Canada. He joined Workday in 2008 as part of the Cape Clear acquisition and will, during this exclusive roundtable, be exploring areas such as:

Do we have the right People with the right skill set?

Do we challenge our processes and invest enough in automation?

And ultimately, does Technology truly enable Finance to be disruptive?

This VIP invitation-only event, which includes complimentary breakfast and drinks for the duration, will enable you to network with like-minded finance professionals who are at various stages of their own transformation journeys and developing their functions to be more cost and time efficient.

FDE will be hosting this breakfast and discussion at the Mandarin Oriental in Munich on Thursday 9th May, 2019.

Our Aims:

Since 1992 FDE magazine has delivered informative and authoritative coverage of the finance function, bringing you comment and analysis from the world’s most powerful business leaders. The objective of FDE briefings is to gather a community of leading Finance Directors / CFOs at world class venues to gain valuable insight from distinguished speakers. Participants have the opportunity to meet, network and discuss relevant issues and trends at a 5 star venue.

Embracing digital technology to transform finance

Exclusive FDE roundtable breakfast on Finance Transformation Success, and the increasingly influential role being played by digital technologies

Founded in 2007, Gym Group is now the fastest growing low cost gym operator in the UK. Emma Castledine, former Head of Reporting and Risk, will discuss the finance transformation journey the organization undertook in order to support this expansion, and the need for core business systems that could help the firm stay agile and deliver on its fast-growth strategy.

She will also provide insight into the challenges Gym Group faced during this journey, and the importance of the ‘Golden Triangle’ of People, Process and Technology.

This exclusive, VIP invitation-only breakfast will enable you to network with like-minded finance professionals who are at various stages of their own transformation journeys and developing their functions to be more cost and time efficient.

Venue:

Agenda:

9.20: Keynote Speech by Emma Castledine, former Head of Reporting and Risk at Gym Group

9.50: Q&A

10.20: End of briefing and additional networking

Our Aims:

Since 1992 FDE magazine has delivered informative and authoritative coverage of the finance function, bringing you comment and analysis from the world’s most powerful business leaders. The objective of FDE briefings is to gather a community of leading Finance Directors / CFOs at world class venues to gain valuable insight from distinguished speakers. Participants have the opportunity to meet, network and discuss relevant issues and trends at a 5 star venue.

Embracing digital technology to transform finance

Exclusive FDE roundtable breakfast on Finance Transformation Success, and the increasingly influential role being played by digital technologies

As we all know, we are living in exciting and challenging times, where technology fuelled by data is creating new opportunities to unlock value through speed, control and insight, as well as creating opportunities to completely reimagine business models.

Therefore, at this exclusive FDE roundtable discussion, we will be hearing from finance leaders across different industries that will be sharing their experiences on the key enablers, as well as pitfalls to avoid, when undertaking any kind of finance transformation journey.

The session will be moderated by Tim Wakeford, VP Financials Product Strategy, EMEA at Workday and former Finance Director and Board Member of Cushman & Wakefield, who was also responsible for the entire digital transformation of finance at this real estate giant and will be exploring areas such as:

Do we have the right People with the right skill set?

Do we challenge our processes and invest enough in automation?

And ultimately, does Technology truly enable Finance to be disruptive?

This exclusive, VIP invitation-only event, which includes complimentary breakfast and drinks for the duration, will enable you to network with like-minded finance professionals who are at various stages of their own transformation journeys and developing their functions to be more cost and time efficient.

FDE will be hosting this roundtable breakfast and discussion at Palace Restaurant, Helsinki on Friday 10th May 2019.

Venue:

Ravintola Palace: Eteläranta 10, 00130 Helsinki, Finland

Agenda:

08.00 – Registration and coffee networking

08.30 – Breakfast served

09.00 – Welcome by Sanjeev Dole, FDE

09.05 – Participants Introduction

09.20 – Tim Wakeford, VP, Financials Product Strategy, EMEA, Workday

09.35 – Q&A

10.20 –End of briefing and additional networking

Our Aims:

Since 1992 FDE magazine has delivered informative and authoritative coverage of the finance function, bringing you comment and analysis from the world’s most powerful business leaders. The objective of FDE briefings is to gather a community of leading Finance Directors / CFOs at world class venues to gain valuable insight from distinguished speakers. Participants have the opportunity to meet, network and discuss relevant issues and trends at a 5 star venue.

Embracing digital technology to transform finance

Exclusive FDE roundtable on Finance Transformation Success, and the increasingly influential role being played by digital technologies

As we all know, we are living in exciting and challenging times, where technology fuelled by data is creating new opportunities to unlock value through speed, control and insight, as well as creating opportunities to completely reimagine business models.

Therefore, at this exclusive FDE roundtable discussion, we will be hearing from finance leaders across different industries that will be sharing their experiences on the key enablers, as well as pitfalls to avoid, when undertaking any kind of finance transformation journey.

The session will be moderated by Brian Montgomery, Finance Director EMEA, APJ & Canada at Workday. Brian is responsible for the accounting and controllership functions for Workday in EMEA, APJ and Canada. He joined Workday in 2008 as part of the Cape Clear acquisition and will, during this exclusive roundtable, be exploring areas such as:

Do we have the right People with the right skill set?

Do we challenge our processes and invest enough in automation?

And ultimately, does Technology truly enable Finance to be disruptive?

This exclusive, VIP invitation-only event, which includes complimentary dinner and drinks for the duration, will enable you to network with like-minded finance professionals who are at various stages of their own transformation journeys and developing their functions to be more cost and time efficient.

FDE will be hosting this roundtable dinner and discussion at Hotel de l’Europe, Amsterdam on Thursday 28th March 2019.

And ultimately, does Technology truly enable Finance to be disruptive?

20.00 Break while table is reset for dinner

20.15 Dinner is served, informal discussion continues

21.15 Closing remarks by FDE, moderator & Workday, as well as participants

21.30 End of briefing

In partnership with

Our Aims:

Since 1992 FDE magazine has delivered informative and authoritative coverage of the finance function, bringing you comment and analysis from the world’s most powerful business leaders. The objective of FDE briefings is to gather a community of leading Finance Directors / CFOs at world class venues to gain valuable insight from distinguished speakers. Participants have the opportunity to meet, network and discuss relevant issues and trends at a 5 star venue.

Achieving high performance in a competitive and digital environment

At this exclusive breakfast briefing in Paris, FDE has welcomed Gilles Bogaert, managing director of finance and operations at Pernod Ricard, as the keynote speaker. Gilles looked at how digital revolution is enabling the company’s finance function to be faster, flexible and forward thinking, whilst helping to monitor performance, be more predictive and drive efficiency across its 86 market companies around the globe.

Adapting to a changing world

In a rapidly changing world, banks and corporate need to adapt like chameleons in order to survive and thrive. HSBC has adapted in recent times by restructuring and simplifying its operations, tackling financial crime risk and dealing with digital disruption. At this exclusive FDE breakfast briefing, Iain Mackay, Group CFO of HSBC, has reflected back on some of the reasons behind the introduction of the seven year plan and what has been achieved so far.

Accelerating Digital

At this exclusive FDE Breakfast briefing in Amsterdam, we were fortunate to welcome Koos Timmermans, CFO & Vice Chairman of ING as our Keynote Speaker. ING, an early mover in digital, has recently been accelerating its digital programme, therefore in his speech Koos explained some of the latest developments and its meaning to the finance function.

Driving Growth in a Digital World

At this exclusive FDE breakfast in Amsterdam, produced in association with Genpact, keynote speaker Laurence Debroux, CFO, HEINEKEN shared her insights on how the company has been driving growth in today’s fast paced digital world.

In her presentation, Laurence has covered the following:

Digital Investment: transformation, disruption and how to avoid an incremental mind-set that hampers investment and innovation

Staying agile: the key to making better informed, faster decisions through the use of predictive analytics, controlled experimentation and minimum viable product approach

Effective partnering: How CFOs can be effective business partners to marketing and operations in their digital transformation journey

Delivering Consistent Financials in a Rapid Growth Environment

In November 2017 Deliveroo won Deloitte’s annual UK Technology Fast 50 Award with a staggering annual growth rate of 107,117%. At this exclusive FDE dinner event in London, Deliveroo’s CFO, Philip Green has shared some of his secrets of this success and explained how finance has managed to keep up to play a key role in supporting the business.

At the Q4 FDE dinner briefing in Copenhagen, produced in association with Genpact, keynote speaker Jesper Brandgaard highlighted the importance of value creation in the role of the CFO.

The timing of the Copenhagen FDEdinner briefing on 9 November was apt, not because it was the day after Donald Trump’s presidential victory, but because as it was the week before World Diabetes Day and the 16th anniversary of Jesper Brandgaard as CFO of Novo Nordisk. The session was moderated by former Unilever chief enterprise support officer Pascal Visée and co-hosted by Pieter van den Goor, head of Nordics for Genpact.

Brandgaard’s speech focused on three drivers of value creation: a world-class backbone to provide finance with a licence to operate, competitive edge and optimal decision-making. In describing the first driver, Brandgaard focused on the importance of data quality,
a globally standardised ERP platform and the leveraging tools of corporate performance management. He championed standardised planning, forecasting and risk reporting, and the use of a balanced scorecard to bring rolling forecasts and non-financial information
into view. He emphasised that a balance scorecard should not be the preserve of executive management but should also cascade down to the wider business. He also spoke about the need for CFOs to “have a strong dotted line to the business” and expert influence in the shortlisting of talent for local leadership positions.

For the second driver, competitive edge, the focus was on the need to set long-term financial targets and participate in external benchmarking. Brandgaard emphasised that long-term targets were not only useful when engaging with investors on metrics relating to growth, profitability, return on capital and cash generation but also useful in driving internal productivity. He stressed, however, that targets are best set by the business itself.

“I really believe that smart CFOs should get parts of the organisation to set challenging targets for themselves in sync with the overall direction of the company. It is much more inspiring and efficient to have colleagues come up with their own targets.”

For the final driver, optimal decision making, Brandgaard argued that CFOs should not get bogged down in transactional finance and instead focus on being a partner to the business. He also argued that the CFO is entitled to and should “interfere” in all parts of a
company’s value chain.

“I believe that the CFO can generate most value by not spending too much time on finance. If you have smart people, then you can leave them to run finance efficiently. At Novo Nordisk, I am more focused on supporting investment decisions in R&D, production and marketing for example,” he said. “You should take your time to be involved with multiple parts of a business, because that is where you can add the most value.”

At a recent FDE briefing in Zurich, the discussion centred on how companies can best approach change and transformation. Keynote speaker Imran Nawaz, SVP Finance Europe for Mondelez International, highlighted and shared the lessons learned since launching its own finance transformation programme in Europe. Meanwhile, the evening’s co-host, Cormac Costelloe from Dell Financial Services, the financing arm of Dell EMC, focused his presentation on why an increasing number of companies are currently going through a digital transformation.

The digital revolution has taken hold and finance leaders are taking on the role of harnessing new technology to keep ahead of the competition. 15 finance leaders from some of Europe’s highest-profile companies, such as Unilever, Rolls-Royce, Diageo and Willis Towers Watson, attended this FDE briefing, produced in partnership with Dell Financial Services, the financing arm of Dell EMC

In his keynote speech, Bill Castell, CFO of corporate banking at Barclays, discussed the growing relationship between the CFO and the digital roadmap. He also highlighted the importance of the quality and use of the expanding volumes of data, the potential change in skill sets required within teams, and how he sees the CFO’s role evolving within digital finance.

Harness digital to drive profitable growth
Companies are adapting business models to survive and thrive in the digital economy. At the summer 2016 FDE breakfast briefing in Amsterdam, supported by Genpact, Kevin Entricken, CFO of Wolters Kluwer, explained how driving a digital agenda has been central to the group's profitable growth.

“If you think that digital has no impact, then you haven’t thought hard enough,” Visée said. “Every business is impacted. Unlike start-ups, the challenge for established multinationals is to do two things – invest in digital and keep the business running. That is the challenge of today.”

Barend van Doorn, vice-president and head of financial services Europe for Genpact, delivered the introductory address, which included a case study to highlight the extent to which traditional services have been disrupted by market entrants.

For Wolters Kluwer, the migration to digital, according to CFO and keynote speaker Kevin Entricken, has been taking place over the past ten years. In this time, the company has metamorphosed from printed journals to customer focused information services and solutions for professionals in the fields of healthcare, tax and accounting, finance and law.

Shape the future
Recent disruptions in global business have led finance functions to purposefully focus on the future. But any efforts to align and re-align to the future must be driven by an underlying, comprehensive and agile framework that is in harmony with the organisational goals and external market drivers. Finance leaders gathered at a dinner briefing in London on 21 April – hosted by Finance Director Europe, in association with WNS – to reflect on their future readiness, and how actionable intelligence, talent and technology can combine to shape a future-ready finance function.

In a world where technology is continually disrupting the status quo and customers have far higher expectations around quality of service, has the finance function managed to keep up? At a recent FDEDinner in London in association with Amadeus, our Keynote speaker, Tim Pullen of O2, has explored the current technology trends, the risks associated with investing into new technologies, or not investing, and the ways to measure the intangible benefits.

Today’s CFO needs to be agile in order to be an effective business partner

Today, the CFO is surrounded by a whole host of challenges that require great agility in the role. During his tenure at Vodafone and now Standard Chartered Bank, Andy Halford has been confronted with a number of similar and differing challenges. As keynote speaker at the latest FDE Dinner Briefing, produced in association with Genpact, he highlighted many of these challenges in the context of an increasingly digital world.

Success in digital transformation means different things to different companies but many have been disappointed by the lack of return on their investments. At the FDEBreakfast Briefing, produced in collaboration with Genpact, there were many questions for guest FD speaker Mark Hesketh about the experience of Standard Life and the lessons learned from its successes in the digital space.

A recent FDE dinner was the setting for a group of finance directors to debate and share their experiences of working in emerging markets. CFO Robin Brown from United Biscuits delivered the keynote, followed by a presentation by Zamo Gwala, CEO of Trade and Investment KwaZulu-Natal.

Robin Brown has been CFO of United Biscuits since June 2013, having spent the previous six years as FD of the UK Biscuit business. One of the responsibilities he has added in his new role is identifying and managing the company’s emerging market strategy. As such, that means in particular focusing on how investments are structured, how oversight is managed and how opportunities are identified and taken forward.

Click here to read the full event review
Click here to read an interview with Robin Brown in FDE
Sample participants:

At the inaugural FDE dinner in Helsinki, produced in partnership with Genpact, a group of 40 CFOs and business leaders heard TapioKorpeinen, CFO & EVP Energy for UPM explain how the Helsinki based giant has been going about its ongoing transformation.

Pascal Visée (left) alongside Tapio Korpeinen

Genpact’s Pieter van den Goor

Rock, paper, scissors

In the world famous game of rock, paper, scissors; paper normally beats rock. In Finland today rock and metal currently dominates the music scene, with 54 bands per 100,000 inhabitants. Paper as an industrial commodity on the other hand over the last few years has metaphorically been cut by scissors. This decline in paper demand in Western Europe was one of the key drivers for UPM’s transformation. Nothing to do with the popularity of heavy metal or rock though!

On a mild October evening at the prestigious Hotel Kämp; keynote speaker, Tapio Korpeinen referred to two key turning points in UPM’s transformation. First, In 2005, UPM decided to reduce paper production by 4.4 million tonnes per year and restructure into 3 business groups: up-stream, mid stream and down stream. Then in 2013, the company changed the way it operated by establishing six stand alone businesses.

“10 years ago, UPM was a traditional vertically integrated paper company, where the paper business in the western world was the core business. From that we have taken the old value chain and changed into six quite independent businesses that have been decoupled from each another”

Korpeinen noted that although independent, these independent businesses make use of the support provided by UPM’s own shared services organisation. A number of transactional processes within this operating model are now being delivered or managed by third parties, including Genpact, who two years ago won a contract to create a global hub for UPM’s transactional finance processes in Kolkata, India.

Pieter van den Goor, Genpact’s Head of Nordics, who was one of the key architects of the UPM-Genpact deal made the introductory address, and touched on the success of the deal to date.

Following Korpeinen’s speech, Pascal Visée, executive advisor and former Chief Enterprise Support Officer for Unilever, served as moderator for the session and moved the discussion on to talk about the how companies can take shared services to the next level. He emphasised the importance of companies moving away from managing shared services on a functional basis and towards process driven Global Business Services. He also highlighted the importance of digital tools such as robotics, big data/analytics and cloud based delivery.

This focus on digital was emphasised by Genpact SVP, Ahmed Mazhari:

“Digital is a crucial consideration, with many industries, and their competitive dynamics, set to be forever altered. The key is to harness digital in a way that can enhance growth, enable business agility and drive cost savings. If the right strategies aren’t adopted, money will typically be haemorrhaged on initiatives that return inadequate ROI.”

Mazhari’s colleague Patrick Cogny, SVP Infrastructure, Manufacturing & Services, explained that Genpact architects what it calls the Lean DigitalSM enterprise, through a unique approach based upon their patented Smart Enterprise Processes (SEPSM) framework to reimagine their clients’ middle and back offices and thus propel their digital transformation strategies.

“Lean DigitalSM is a combination of classic and cutting edge methods – specifically, Lean principles, advanced digital technologies and a discovery process that involves design thinking – to harness digital’s revolutionary power in an agile way. Ultimately the emergence of Lean Digital practices can help generate material impact for large enterprises through the latest technologies, faster”

Judging from the feedback from this event, “digitalisation” is an area that will beat rock, paper and scissors going forward and will be a focal point for the next FDE briefing in London. On 3 December 2015, Mark Hesketh, Finance Director of the UK and Europe for Standard Life plc will discuss how CFOs can go about developing and executing an effective digital investment strategy. For further information, please contact me at stevedunkerley@globaltrademedia.com

FDE’s latest briefing examined the future of business and the finance function

Co-host: Krishnan
Raghunathan, CCO, WNS

Keynote speaker: Jens Madrian CFO,RWE npower

What's your 2020 vision?

FDE's latest London briefing, produced in association with WNS, focused on the future of global business - specifically the finance function and the importance of “digital” in a hyper connected world. Keynote speaker, Jens Madrian highlighted how the role of the CFO has evolved and the tools and technologies being embraced by his organisation. He also addressed the talent gap, where data scientists for example are becoming increasingly sought after.

FDE's Q2 London round table, produced in association with Genpact, gave
attendees, many of whom were either CFOs or heads of operational finance
and GBS (global business services), the chance to discuss what they think an
'intelligent' operating model is and the extent to which they are introducing
smarter working across their business processes. Click here to view the full event review

How does a bank stay efficient and competitive in a climate of continued regulatory and macro economic pressure, zero-interest rates and widespread digitalisation? At the Q2 2015 FDE breakfast meeting in Stockholm, keynote speaker Göran Bronner, CFO of Swedbank,

Sweden's Mans Zelmerlow has just won the Eurovision song contest, so the mood at
Stockholm's Grand Hotel was upbeat when Finance Director Europe's Steve Dunkerley welcomed the 40 or so delegates to the latest breakfast briefing....Click here to view the full event review

Finance Director Europe’s Q4 2015 breakfast briefing was held once again at Amsterdam’s Hotel de l’Europe. Following an introductory address by Genpact’s Barend van Doorn, ING Group CFO, Patrick Flynn gave a keynote discussion to a room full of leading finance leaders from across the AEX25.

Flynn’s talk revolved around restructuring and portfolio simplification, and he detailed how ING went about its restructuring and portfolio simplification with specific reference to the IPO of its insurance businesses. He also discussed how ING is developing and executing its ‘Financial ambition plan 2017’ to drive group-wide efficiency.

Flynn first expressed how the restructuring experience was an intense period of transformation that began during the dark and uncertain days of the global financial crisis. Yet after five years, it resulted in ING emerging in strong financial health.

Restructuring
ING has gone through a significant period of change, specifically in terms of altering their profile from a banking and insurance conglomerate, to a stand-alone pure-play bank. Over five years, they’ve completed the sales of 50 businesses and recorded €40 billion in transaction value, which required concentrated managerial focus and execution, as well as commitment from the entire organisation.
So now, ING has strong financials, a unique business model and a very attractive portfolio of businesses that will provide myriad opportunities and take advantage of the transformation in the banking landscape.

Planning, focus and discipline
The most challenging and time consuming part of the restructuring, said Flynn, was related to the preparation and execution of two major insurance businesses for public listing: Voya and NN Group.

A big part of ING’s transitioning was a result of EC-directed restructuring, which imposed a series of timetables and deadlines. This made the job tougher and as potential buyers knew ING had to offload assets within certain periods.

So they invested a lot of time into solid planning, getting a dedicated organisation in place, and making sure they had the capacity to deal with ‘detail’, particularly with regard to the IPOs.

They also established a dedicated M&A team, and as ING was in the lead, bankers were there only as advisers.

They devoted a lot of time and effort to getting the equity story right, and even though ING is known for customer focus, the investment community is mostly interested in valuation, dividends, ROE and the quality of the management team.

Investors generally want to know fully what they are getting into, when investing in an IPO. They don’t take kindly to uncertainty or poorly explained issues. So the key was to take the time to set out clearly the facts and likely scenarios in regard to the parts of the business that are effectively the Achilles heel and their possible impact on valuation.

But with both IPOs, there were issues, like the Variable Annuity (VA) book in the US with the Voya IPO, and the long-running woekerpolis issue with the NN Group IPO. Of course, in the finance world, tasks are made more difficult with changing regulations, which evolved toward stricter supervision and compliance regimes.

Financial Ambition 2017
The cornerstone of the 2014-2017 phase, the Ambition 2017 phase, is the resumption of dividend payments and the generation of capital for growth. Ambition 2017 was delivered as part of ING’s Think Forward strategy announced in March and they developed the Think Forward strategy (and the Ambition 2017 targets) to address trends shaping and challenging our industry: The major ones are:

Technology is transforming the industry

Customers now more self-directed than ever and better informed

New entrants (non-banks such as Google, PayPal and iPay) are changing the competitive landscape

Tougher than ever regulation

By 2017, ING plans to:

Have a fully-loaded common equity Tier 1 (our capital buffer) of greater than 10% and leverage of about 4%

On the profitability front, they hope to have a cost/income ratio of between 50% to 53%, and a return on IFRS-EU equity of between 10 and 13%

Begin to pay dividends next year and achieve a payout of 40%

The cornerstone of the strategy is to build on strengths in customer engagement to create a superior customer experience. On the financial side, they are looking to diversify and increase lending to lift net interest margin, to leverage further a competitive advantage that comes from a low cost model, and to continue to generate strong levels of capital.

The evening opened with a question posed by Steve Dunkerley: “What is innovation through the lens of the finance director (FD)?” The cost and risks associated with being innovative often have an FD taking a back seat or shooting down new ideas, but, according to Dunkerley, FDs are increasingly getting involved as “innovation business partners” to help ensure a company remains competitive, effective and relevant in the long term.

Expanding on this in the introductory address was Barend van Doorn, head of continental Europe and financial services for Genpact, who looked at the growing importance of innovation in the context of corporate longevity and survival. “I recently read an article in which it essentially argued that innovation was strongly correlated to the life existence of companies,” he said. He then asked those present what they thought the average lifespan of a company in the early 20th century was.
“The answer is 120 years,” he answered. “Then, in the 60s, they did another survey, which revealed that the average lifespan of a company was reduced significantly to approximately 60 years. And then, two years ago, they ran the survey once more and the number had dropped to ten to 12 years. So that means that companies don’t live that long any more due to rapidly changing market conditions.”

After ten to 12 years, companies do not necessarily disappear; they cease within their current existence, because they get merged, taken over or have to stop their activities due to. bankruptcy or regulatory reasons. So what can today’s business do to ensure they aren’t preparing obituaries after just a decade? What can they do to protect themselves against obsolescence? To approach an answer, van Doorn used the example of GE, now one of the world’s oldest companies, but still one of its most innovative. How has it achieved that longevity? “What it says is 30-40% of your revenue should come from products and services that you have launched in the past three or four years,” he said. But, he added, despite GE’s strength and size, its commitment to innovation is neither a cause nor effect of market share. “Innovation has never been about being the biggest,” van Doorn said. “Everybody talks about market share being critical; you will see that huge companies like AT&T and IBM are seeing revenues declining, along with profits.” Instead, van Doorn believes the cause of this is the tendency of large, dominant market leaders to resist change and rely on established techniques. Not, he argued, a scenario likely to allow innovation to flourish.

Evolution
These are salutary words and certainly a sentiment that Mark Rennison would recognise. As the finance director of a business that can claim a lifespan of 168 years (and counting), Rennison has a venerable institution trusted by millions of savers and mortgage holders under his care, and he’s also working in one of the most heavily regulated sectors - one that still reverberates to the shockwaves of the banking crisis six years ago. Innovation in financial services, it is fair to say, is something of a dangerous concept.

It’s a point Rennison recognised. “As you may know, 70-80% of Nationwide’s business is mortgages and savings, and I think most will realise that those products have been around for quite a while,” he continued. Indeed, Nationwide has 15 million members and customers, and has a relationship with about one in four households in the UK. Added to that, it has 17,000 employees working across the UK in approximately 700 branches. By size, it is the second-biggest household-savings provider in the UK and third-biggest mortgage provider. Its share in those markets is approximately 11%; added to a 6% share of the personal current-account market. So how revolutionary or innovative can the FD of such a business truly be? “Innovation in this context is not really game changing or revolutionary - it’s evolution,” Rennison told the guests. “It’s about evolution in the way that finance supports business strategy. That’s the way we look at it at Nationwide. And that is because we are operating in a marketplace that is increasingly driven by consumers, social media and, something we talk a lot about at Nationwide at the moment, the digital agenda.”

Sign of the times
Rennison explained that added to the rapid pace of change in the ways customers interact with their financial services providers is the “tsunami of regulation” that is still engulfing the industry. “The length of our reported accounts has grown by more than 50% in the past four years from 175 pages to 270 pages, and that’s as a result of things like the enhanced disclosure task force and the requirement for annual reported accounts to be ‘fair, balanced and understandable’,” he said. “It’s that level of change, often with short delivery timescales, that leads me to conclude that what we’re talking about is no longer continuous improvement. Rather, it demands a more disruptive or urgent response that necessitates a more innovative approach.” That, then, has been the challenge facing the finance team at Nationwide - harnessing innovation within a heavily regulated, slow-moving and traditionally quite staid sector. Yet, the FD was keen to share the ways in which his finance team had broken free of inertia to deliver genuine change and, by doing so, maintained Nationwide’s leading position.

Capital investment
Core capital deferred shares (CCDS) may not be a familiar term to everyone, but to Rennison, it represents the very best of finance-driven transformation. As a mutual, he explained, Nationwide doesn’t have access to the capital markets in the way a plc or bank would. “Most of our capital is funded through retained earnings, and modest amounts of debt capital in the pre-crisis environment were funded through PIBS,” he stated.

A regulatory change - and the need to significantly improve capital ratios - meant that Nationwide faced a challenge to access qualifying capital to fund itself. The result would turn out to be CCDS, a solution designed and developed in house by the finance team at Nationwide that not only satisfied regulators but also allowed the business to retain its mutual status, with all its abiding principles.
“From our point of view, those principles were very important in terms of continuing a business that still looked and felt like a building society, and still did for its members what the building society movement has always done for its members, but it was quite a challenge,” he added.

The CCDS solution - a new instrument with no precedent - wasn’t an easy sell to investors, and challenged the ingenuity of the finance team “because it was a new instrument where there were no real precedents to work with and the resulting document needed to set all the parameters associated with CCDS, from voting and distribution rights, pricing to tax investment and legal form,” Rennison said. Ultimately, finance delivered. CCDS was admitted to the London Stock Exchange on 3 December 2013. “Through this whole process, the finance team at Nationwide really led the change. It was a multiyear project; it was strategically a top-three project for the organisation in terms of ambition, and that was in the sense that without it, our future strategy was going to be seriously constrained,” he continued.

Success factor
So what did Rennison think were the two principal factors in the success of the project? What gave birth to the innovation, and why did it succeed? “First there was a clear and compelling need to create a new capital instrument,” he reflected. “At Nationwide, we believe very strongly in the mutual model, but to be able to continue with our business plan into the post-crisis world, we had to find this new solution, and that proves the adage that necessity is indeed the mother of invention. “The second factor centres on the response. When we were faced with what were some quite significant and seemingly unresolvable issues, the business response was to keep battling through. So there was an actual drive and that was in large part responsible for the successful outcome of the project. There were many opportunities when we could have stopped the project, but the team that I led never gave up; [they] always felt that they could do it. But I’m not sure that the organisation would have felt that five or six years earlier, pre-crisis.” But it’s not only market-led innovation. Rennison was keen to illustrate the changing role of finance within the business.

The enthusiasm with which business gurus, consultants and journalists has fastened on to the possibilities of business partnering, and harnessing finance’s insight and skill into other areas of the organisation, is well documented. In practical terms, however, delivering that has proved beyond most firms. Rennison, though, was able to demonstrate that the Nationwide finance function has, for some time, been a pivotal supporter of innovation and change. He cited the example of the mutual’s decision to update its 25-year-old current account, which had changed little since its launch. This would have been fine; only the effort - involving several hundred million pounds in investment - was just beginning as the financial crisis hit.

“The easiest decision at the time would have been to suspend that project to deliver the new banking platform, but that would have carried substantial consequences for our ability to compete effectively going forward,” Rennison recalls. “Our own financial performance, at that time, was coming under significant pressure. So, the obvious thing for finance to do at that stage was to urge caution, exert control and close down all forms of discretionary spending, and, to be clear, that’s what we were doing elsewhere within the business in relation to other options. “However, I am proud to look back on the role that the team that I lead played in supporting a brave decision to launch what was a strategic project that was critical to the long-term viability of the society.”

In Rennison’s telling, while prudent management is critical and is what finance functions generally are very good at, it needs to be blended with the confidence to see strategic opportunities and to create the financial headroom to pursue them. “Ultimately, strategic failure is just the same as financial failure; it just happens a bit slower,” he concluded.

Vodafone’s recent $130 billion divestiture of its stake in Verizon Wireless is the third-largest corporate transaction ever. At Finance Director Europe’s latest Breakfast Briefing, award-winner Andy Halford, Vodafone’s outgoing CFO, gave a keynote speech on the strategic background to the deal and where the firm plans to go from here.

On a cool morning in early February, 45 delegates gathered for Finance Director Europe's latest Breakfast Briefing at the Dorchester Hotel on London's Park Lane. Vodafone CFO Andy Halford, the man behind the firm's $130 billion divestiture of its 45% stake in Verizon Wireless, was giving a keynote presentation on the rationale behind the group's portfolio realignment and its future investment strategy.

The session commenced with introductory remarks from FDE's Steve Dunkerley and Rutger Ford, associate principal of REL. Ford provided statistics about the current global wireless market, including Vodafone's market share (7.9% globally and 14.4% in Europe). Dunkerley spoke briefly about the evolution of the US telecom sector and how it is no stranger to divestiture following the forced breakup of AT&T in 1984.

Transatlantic relationships

The US was also the focal point for Andy Halford during the opening of his keynote address, in which he described Vodafone's first major foray across the Atlantic in 1999, when he joined the firm.

"At that point in time, and with a market-cap of $70 billion, Vodafone decided it needed to acquire, or it was going to be acquired," he said. "We opted for the former.

"We paid $70 billion to acquire Airtouch, which was largely on the west coast of the US. It was a bold lead move - Vodafone essentially bid the whole of its market-cap to win that business, but the people involved absolutely believed in what they were doing."

This acquisition was to become Vodafone's 45% stake in the new Verizon Wireless, following the firm's merger with Bell Atlantic (now Verizon Communications), which operated in the heart of the US as well as on the east coast.

Halford then discussed Vodafone's subsequent acquisition of the Mannesmann Group in 2000, which had a market capitalisation of $160 billon. After failing to reach an agreement, Vodafone put in what turned out to be a successful hostile bid for the company, the largest ever made for a German firm.

"I'd only been in the business 18 months and the group had doubled and then basically quadrupled," said Halford. "It was like every few months something bigger and bigger happened."

After a brief summary of the firm's additional forays into Japan ("not hugely successful") and India ("now by far the fastest-growing part of our group"), Halford moved on to the main business of the day: the tense lead up to - and logic behind - the recent deal between Vodafone and Verizon Wireless.

"Because we were only a 45% owner, Verizon could basically call the dividends and for several years they were very keen to prioritise the repayment of debt," Halford began. "So they decided that no dividends would be paid."

"Then, around four to five years ago, two important things happened. The first was that the Verizon Wireless business became debt-free.

"The second was that Verizon Communication's other business - a fixed line business - was no longer generating much cash. But Verizon still had an obligation to pay their shareholders about $5 billon of dividends a year."
Halford had also been CFO of Verizon Wireless in its early days and had seen it grow into a cash-producing machine that was generating around $1.25 billion dollars of cash a month in the last couple of years. Generating this amount of cash - and with its 55% share ownership - Verizon decided to recommence "significant" dividend payments.
"However, it was clear to us that the management of Verizon were still keen to bring this to a close - they did not see 55% ownership as where they wanted to end up," he noted. "So we basically said that while we were happy with the 45%, if there was a big enough cheque on the table, then we would have a responsibility to look at it. But we would need a very big cheque."

Reduced debt and future investment

The deal's key discussions took place behind the scenes in the summer of last year. Halford described how media interest made it incredibly difficult to keep details under wraps, though the leak was successfully contained until around three days before the deal closed.

"In the end, we got about nine times earnings, when the average in the European sector was probably more like five to six," he said. "At $130 billion we just thought there's a point where the risk of regret later is so low that this is a deal to be done."

The transaction will give Vodafone's shareholders $84 billion of value. Halford also estimated the tax bill to be just $5 billion - an effective rate of only 3.8%. Vodafone will retain 35% of the money, enabling it to halve the level of debt on its balance sheet and taking the firm down to the lowest level it has seen since 2005. The company will also significantly reduce its share count and thereby "significantly improve" dividend cover.

"One of the issues we had was that while we would have loved to maximise the amount of the $130 billion that was to be paid in cash, there just wasn't likely to be that amount of liquid cash in the world," Halford commented, wryly. "This wasn't the bank manager saying 'I can't lend you any more'. It was that Verizon couldn't find any more in the whole world.

"So we basically agreed we would take $60 billion in cash, $60 billion in Verizon shares and $10 billion in various other things. But to actually deal in something where the limiting factor was global cash liquidity - that was quite entertaining."

Vodafone has received some criticism for agreeing to the deal, much of it focused on the significant diminishment in the company's size. But Halford was keen to stress that the firm is still huge by most metrics; Vodafone will have 420 million customers after the divestment, making it the largest European operator by some margin. It is also second only to China Mobile and AT&T at an international level.

The telecommunications company also has big plans for the future: £7 billion will be used to boost its 'Project Spring' capital investment programme, making a total of £19 billion to be spent over the next two years.

"Our view is that we have the cash, and while most of our competitors have well-structured balance sheets, if ever there was a time to push our 4G networks in Europe and 3G in the rest of the world very hard and fast, this is the time to do it," said Halford.

"By taking our level of debt down to one times EBITDA, which is the lowest we've had for many years, we will also have the necessary funding in the event that we can find opportunities to buy into cable or fibre as the world starts to move away from purely being wireless."

Of the £7 billion fund, a portion will be used to target South Africa to help improve fibre access to homes and businesses, and enable a faster roll out of fourth-generation (4G) networks. Vodafone already has extensive experience of the African continent, establishing its Vodacom subsidiary in South Africa in 1995, Egypt in 1998 and Kenya in 2001.

"In Europe, the fixed operators will provide formidable competition in the long term, but that is not true for a lot of the African markets," said Halford. "This encourages us to press on and actually take this space, which isn't necessarily available to us in other parts of the world.

"The population is very large. We've shown with mobile that if you can get the cost of handsets and service down low enough, there's a huge appetite for it... I think the data part of the story is only just beginning in both Africa and India. It's more affordable than a PC and it also requires a lower level of literacy."

Following Halford's keynote address, Kanyi Ntloko Gasa, executive manager for investment for KwaZulu-Natal (KZN), reinforced why South Africa and the KZN region have become ripe for investment, before a final Q&A session.

At the end of the briefing, FDE's Steve Dunkerley presented Andy Halford with the FDE 'Deal of the Decade' award, a fitting finale to one of Andy Halford's final speaking engagements as CFO of Vodafone.

Sustainable and Effective
On a mild morning in late October 2013, Finance Director Europe hosted the second
of two breakfast briefings sponsored by REL, a member of the Hackett Group, and Genpact at Amsterdam’s Hotel de l’Europe. A month earlier, Gijsbert de Zoeten, CFO of Unilever
Europe, addressed 40 finance leaders, predominantly from the AEX 25, on the importance of Unilever’s sustainable living plan to its group strategy and finance function. Rolf Dieter Schwalb’s subsequent keynote address continued where de Zoeten left off, as sustainability has become an important pillar of DSM’s own growth strategy.

“Sustainability is a focal point for our investment in innovation. Not only is DSM developing materials that protect the environment and serve customer demand, but we, as a company, are also benefitting from increased margins,” explained Schwalb.

He highlighted this with an example of the production process for a sustainable plastic for the automotive sector. “During the development of DSM’s EcoPaXX material, the CO2 generated during its production process offsets the amount of carbon dioxide absorbed in the growth phase of the raw material; in this case, castor beans, explained Schwalb. “In addition, it provides DSM with a gross margin ten points higher than the mainstream plastics.” Serving customer demand for sustainable niche plastics also shows
how DSM’s business portfolio has evolved in recent years. In the past, the focus was on bulk commodities, but today it has far more product lines in order to satisfy increasingly specific
customer needs across a greater number of countries. In the nutrition space, DSM sells tens of thousands of products, and therefore has developed large sales and marketing organisations, along with an agile approach to manufacturing.

Changing business model
Moving business closer to the customer In addition to a transformed business culture, 40% of DSM’s total revenues currently come from emerging markets, and this is set to increase to 45% in the next few years. Customers are diminishing in the local Benelux and European market, and as a consequence,
DSM has followed them by moving five of its eight business group headquarters out of the Netherlands.
The company’s innovation centres have also been moved closer to customers, leaving just two in the
Netherlands. The back office has followed suit and transactional finance is now delivered from Hyderabad in India as part of a project known as Arjuna, named after a character in the Hindu Mahabharata, a loyal servant to Krishna and a skilled archer. This name is therefore appropriate for an operation that aims to target cost savings.

“We started Arjuna under what we called the ‘finance management agenda’,” said Schwalb. “Just after a strategy announcement in 2010, we defined ten key ways to develop the finance organisation; one of these is called ‘leverage finance operations’, which evolved to become the project Arjuna.”
While Arjuna is the finance and accounting part of the back office, DSM is busy developing its global business services model.

“HR shared services, finance shared services and IT shared services now fall under the remit of one leader - Aloys Kregting, who is DSM’s CIO and head of DSM business services, and whose department already comprises 1,200 people globally,“ said Schwalb.

Global business services
The move to a global business services (GBS) operating model was the first of five trends noted by Koen de Rijcke, Genpact’s vice-president and head of Benelux and France, who provided the supporting address at the event. “We are seeing this concept of GBS really gaining traction,” de Rijcke said. “There
are some companies that are already there, but moving to a broader, multifunctional scope on a global basis, while also looking at covering end-to-end processes, such as order to cash and source to pay.”
The second and third trends noted by de Rijcke related to the motivation driving companies toward a shared services or GBS model.

“It’s an enabler of the strategy,” he said. “It is not just about taking out costs; it’s about integrating acquisitions and supporting standardisation across markets, and therefore enabling the business to service its customers across geographies. It’s also helping to bring insights back into the business so
companies can develop into more of a business partner role.

“This brings us onto the trend of shared services delivering value over and above cost reduction. If you look at the end-to-end processes order to cash and source to pay, shared services can help drive out leakage in the order-to-cash cycle and optimise working capital to drive down days sales outstanding (DSO) or bring insights to the source-to-pay cycle, so that the total cost of ownership and sourcing costs actually go down.”

The fourth trend identified by de Rijcke was around how shared services are delivered. He noted that hybrid operating models that comprise both outsourced and in-house delivery components are now the norm. He then highlighted the importance of optimising process, technology and analytics to achieve target outcomes in the end-to end processes of order to cash and source to pay.

“In the order-to-cash cycle, how can you use customer segmentation data?” he continued. “How can you use detailed analytics insight in terms of payments patterns to improve your collections
strategies? Similarly, in the source-to-pay cycle, how can spend and supplier analytics help you to bring down the total cost of ownership? This combination of process, technology and analytics is something that we will see more frequently, and is something that we are investing in very strongly.”

Need for speed
Following his supporting address, de Rijcke chaired the Q&A and one of the questions he himself asked Schwalb was whether he would have done anything differently in regard to the Arjuna project.

“I would have done the first part more quickly,” he responded. “I joined the company in 2006 and was told that the company had decided to move to shared services. I had to learn after I joined that
this statement - that the company had decided to introduce GBS - did not mean that it was being done now, but rather that the next round of discussions starts now. It took me a while to understand this.
“In my previous two companies, I was used to faster decision-making processes. This has a lot to do with the governance of the company. Businesses are the kingdoms of the company, which have
the P&L responsibility, and whenever you want to do something more centrally, you have to really convince them in order to get the buy in.”

Productivity, growth and cashflow
On a mild mid-March morning, more than 65 delegates filled the splendidly ornate breakfast room of the prestigious Savoy Baur en Ville hotel in Zürich, Switzerland, for the latest FDE briefing covering the theme of driving productivity, growth and cashflow.

Dick Paul, head of commercial business at Swisscard AECS, provided the introductory address for the session by outlining some of the current challenges facing the pharmaceutical sector, such as patent cliffs being created when a pharma company has to relinquish its exclusive rights to manufacture profitable drugs, and bills not being paid by hard-up public hospitals in southern Europe. These issues were further discussed in the Q&A section of the session.

In preparation for a discussion about cashflow return on investment (CFROI) and the metrics associated with productivity, Jon Symonds, then CFO at Novartis, began by reminding delegates of the danger of over-relying on a single metric when managing performance.

“If you just focus on one metric, whether it’s productivity, cashflow or profitability, you can easily find that overemphasis on a particular metric suddenly creates outcomes that you would rather not want,” he said. “And we’ve been in that situation before in driving cashflow, suddenly finding that when you need inventories in the market, you haven’t got any because somebody’s prioritised cashflow over everything else.”

Intentionally diversified
The 2010 acquisition of eye care giant Alcon for $51 billion was a key moment for Novartis as it substantially diversified its product portfolio, which already included life-saving cancer drugs and well-known over-the-counter consumer medicines such as Savlon. Symonds explained how this diversification was deliberate in order to protect the company from a changing pharma market and to exploit opportunities between its divisions.

“One of the things over the past two or three years that we’ve been trying to enhance is intra-divisional cooperation,” he continued. “I joined a group where the divisions were very independent and it was really not possible to either trade between the divisions or move talent between them.”

According to Symonds, the divisions now recognise that the whole can generate more revenues and savings than the individual pieces. As a result, nearly $3 billion of productivity benefits have been created in a year, which is aggregating somewhere between three and a half and four percentage points of margin a year.

The considerable diversification of Novartis’ portfolio meant that a different approach was required in marketing the company to investors, which was previously centred around explaining the past, present and future strategies of the individual divisions. Symonds explained that, in order to make Novartis a more attractive investor proposition, the company had to find the essential ingredients of the industry and where its true competitive edge lay.

“Innovation, growth and productivity are the three things we communicate. What have our achievements in the quarter been on innovation? How are we translating that innovation into growth? And what are we doing to improve profitability? It is really simple; I don’t have to talk about pharma and Alcon and Sandoz [a division of Novartis]; I just talk about these three things. If you’re clear you’re delivering against these, then ultimately value will come.”

Growth through innovation
To highlight the importance of innovation as part of growth strategy, Symonds reflected on Paul’s earlier remark concerning the pharma patent cliff challenge: “As Dick [Paul] pointed out, if you don’t innovate in this industry then your top line disappears after ten years when the patents go and if you don’t replace it then you decline. That is unfortunately what is happening to many companies in our industry. So, actually, this is something Novartis has achieved over a considerable period of time, but it had done less well in the translation of innovation into growth, and it had not emphasised productivity enough. Those two pieces are easy, frankly, if you’ve got innovation.”

Symonds then highlighted the extent to which Novartis is growing through new drug development: “Over the next 24 months, we expect 18 product approvals, 20 new product filings, and behind that 24 critical pieces of clinical data coming out. And so the first metric - innovation - is pretty healthy. I think the growth drivers are there and portfolio rejuvenation is the only defence against patents and generic entries.”

Productivity and CFROI
The discussion then moved on to the importance of cash over profits in the current climate.
“I tell my people that profits don’t actually pay your wages, profits don’t pay dividends - you have to convert those profits into cash,” said Symonds. “And for a while, we were able to run the model whereby cashflow exceeded profit growth, which exceeded sales growth.”

The longer-term solution for Symonds was to add another dimension to how cashflow performance was analysed. This was via the CFROI methodology, a percentage rate-of-return valuation model that is essentially cashflow divided by market value of capital employed. The methodology was developed in the 1970s by Bartley Madden and Bob Hendricks and is currently promoted to corporates and shareholders via the Credit Suisse-owned company HOLT. It helps CFOs gauge productivity from a sales, margin and asset-turnover perspective. In Symonds’ case, applying the methodology enabled him to know the true business impact that its divisions were claiming to deliver. For him, the key to understanding productivity was to be able to monitor the returns being generated from cash reinvested into divisions.

“Productivity can very easily be a game and I have been a victim of the productivity game,” he said. “You don’t get tricked more than once, because if somebody tells you you’ve made five percentage points of improvement of margin in the course of the past year, and your profits don’t go up five percentage points, then something somewhere in the model is wrong. This is often the problem with productivity. You can measure what you create but do you know where it goes? It is very important for us to control the reinvestment rate to make sure that it is consistent with our return models.”

Southern Europe debt crisis
The focal point of the supporting address by Ahmed Mazhari, Genpact SVP Europe, and the Q&A session hosted by Paul Moody, associate principal, REL, was the issue of public healthcare providers in countries such as Greece, Spain and Italy having problems affording medicine because of the debt crisis. Greece, for example, currently owes around €2 billion to pharmacists and drug manufacturers. For Symonds, in addition to techniques such as factoring and credit insurance, the key to managing risk in this situation is preparation, proactivity with counterparties, good market awareness and timing.

“We calculated that if we hadn’t got on top of this issue 18 months ago then our exposures would be something like a $1 billion more than they are,” he said.

“In Greece, we’ve put an army of people in to validate each of the invoices. We even helped to print the payment slips so that the payment comes out. In Spain, we validated 150,000 invoices over a three-week period and got the best part of €250 million out when the refinancing came into the ECB [European Central Bank]. So it really has got to be a very detailed dissection of what is going on in the market and understanding exactly where to intervene.”

Mazhari asked Symonds for his view on the dilemma pharmaceutical companies face when continuing to supply cash-strapped healthcare providers in Southern Europe with medicines. Symonds’ reply highlighted the importance of balancing moral obligations with business needs.

“I don’t like emotional blackmail but I do accept my responsibilities as a provider of life-saving medicines, ” he said. “We’ve done a very careful dissection of our portfolio in these markets and we’ve identified products that fit into two categories. Either they are life-saving - where clearly we have some moral responsibility - or we are the sole supplier of important medicines and there is no competitive alternative. For those two, we accept a degree of responsibility; for the rest, you’ve got a series of alternative options and if it means we do less business then so be it. It is, for us, a very difficult discussion and one we can’t put down to just hard-nosed financial terms because of the nature of the products we deal with.”

The Q4 2012 FDE breakfast briefing in Stockholm saw Peter Wallin, group CFO of Skanska, highlight how the construction giant is growing profitably and maintaining capital efficiency in a climate of economic uncertainty.

On a snowy morning in December, sandwiched between the Nobel prize-giving ceremony on the 11th and Saint Lucia's day on the 13th, FDE held its Q4 breakfast briefing at the Grand Hotel in Stockholm.
The keynote speaker was Peter Wallin, group CFO of building and construction giant Skanska, while Lena Bertisson, executive director of corporate coverage at RBS and Genpact's Nordic leader, Pieter van den Goor, provided the supporting addresses. The topic of the morning was how companies should go about maintaining capital efficiency and profitable growth in the current economic climate.

FDE's Steve Dunkerley broke the ice with a short welcome address before handing over to Lena Bertisson, whose introduction highlighted some of the ways companies are responding to the challenges caused by continuing poor economic conditions. These included utilising the capital markets for funding or more prudent cash management.

Divestment and rationalisation
In his keynote address, Peter Wallin referenced some of the points raised by Bertilisson and began by showing a slide depicting a torn-down building, the proposed site of the new Skanska headquarters. This acted as a metaphor for the way in which the SEK125 billion company responds to difficulties by changing business models, divesting poor-performing assets, deploying capital and creating value. Wallin went on to explain the rationale for a recent business model change.

"Fifteen years back, the company was more of a conglomerate, owning a large residential and commercial property portfolio that was held to be managed," he said. "We held a lot of blue chip stocks like Sandvik and we had a lot of cash on our hands; that was an impact of the currency restrictions we had and a result of the extraordinarily high marginal tax."

Skanska was in need of structural change and this required a substantial amount of divestment and rationalisation.

"We handed out a large part and floated the properties on the stock market," Wallin said. "We sold off the blue chip companies. We acquired a lot of businesses to create the footprint we have today, in combination with organic growth in a number of selected markets and segments."

One of the key tools driving the new Skanska was an EVA model known as Skanska value added (SVA), which focused on changing behaviours within the decentralised Skanska business.

"We drove old behaviours out of the system with SVA," explained Wallin. "It gives a straight line of sight with how we control the business and scale it internally as well as the way the outside world - including analysts investors and banks - are looking at our type of business."

Wallin went on to highlight how negative working capital accumulates and is managed throughout the lifecycle of an external construction contract.

"Do we put the money in the bank for 0.25% interest? No, we have a different way of doing it," he explained. "We put the money in project development, which means both residential and commercial development, as well as infrastructure development."

While Skanska is engaged in the early stages of project development, it is also very much involved in the actual construction. Wallin highlighted the current example of New Karolinska Solna hospital, Skanska's largest-ever project with over 2,000 people involved in its day to day construction.

Capital-intensive projects
Next, the CFO talked about the funding requirements for both construction projects and the more capital-intensive development projects. For construction projects, the role of the bank, according to Wallin, is to support cash management and assist in the origination of shorter duration bonds, and guarantees and warranties.

He stressed that, because of the EVA model adopted by the group, there were limits on how much capital is plugged into the development business, as well as the importance of a performance-based incentivisation programme.

"Because we are decentralised, we need to equip the people out there with the right tools to help them assess their own profitability; when you are way out in the projects it is hard to drive processes," he said. "We have a winning mindset in our business. People don't have a big fixed salary but instead have a variable bonus component, so they need to hit their targets. The most important tool is people and their need to excel in the organisation."

In terms of the future, Wallin acknowledged that the market is challenging and changing, and concluded by highlighting the importance of the CFO in times of economic crisis.

"Clearly, we can see Europe slowing down. The Nordic tiger has become a kitten," he said. "The US, however, is starting to rev up quite a bit... As a CFO you can also see that crises are needed from time to time because with crisis you can drive efficiencies, you can light up all the burning platforms you need. Then you need to be good at putting out a fire. We need crisis internally and externally in order to develop as a company. So capital efficiency is never an end target but instead a moving target."

On a sunny June morning in Amsterdam, 40 senior finance executives from multinational companies such as Shell, Unilever, ING Akzo Nobel and Aegon came together for the latest FDE briefing in the newly refurbished Hotel De l'Europe. The focus of the session was around cash and cost management, and the keynote speaker was René Hooft Graafland, group CFO of Heineken. Following a welcome address by FDE's Steve Dunkerley and Dick Paul from American Express, the introductory address was delivered by Rutger Ford, senior director, Benelux for REL. Ford presented a brief overview of working capital performance among European companies over the last 12 months, drawing from REL's 14th working capital survey. According to Ford, overall performance hadn't changed considerably despite economic challenges and that there was a working capital potential opportunity of €886 billion for the firms not performing in the upper quartile.

Total cost management

The first part of Hooft Graafland's presentation focused on Heineken's total cost management (TCM) programme, which started in tandem with the “Hunt for cash” programme following the £1.7 billion acquisition of Scottish and Newcastle in 2008. The company was confronted with a £10 billion debt level and an aggressive net debt EBITDA of 3.3×. This was also the year when the financial crisis began and Lehman caused many sleepless nights for CFOs around the world. These two company-wide programmes were known internally as “must win battles” and were both driven by finance. Hooft Graafland stressed the precision required in driving the TCM programme and the need to balance strategic investment with cost-cutting.

“Managing a good cost programme is an art in itself. You want to cut the fat, but you don't want to cut into the muscle of the organisation. On the contrary, you need to continue to strengthen the muscles of the organisation, while on the other side you need to take out cost.”

The solution for Heineken was to manage the TCM programme on gross savings rather than net savings as according to Graafland, managing on net savings increased the risk of the business being starved from investment.

“The easiest thing is to manage the cost programme on net savings as it is easy to measure, but the result of this is that people will stop doing things that increase their cost and are for the benefit of the business. We therefore decided to split the two. We have cost savings on one hand and cost increases and investments on the other. You need to manage these separately, which causes complexity and means you need very clear definitions as to what cost savings are - you need to define how you calculate it.”

As a result of the TCM programme, Heineken saved €600 million in a three-year timeframe, and immediately afterward, TCM 2 commenced since, according to Hooft Graafland, cost-saving activity should never stop.

“Just like the Olympics, people run a certain time and you think that they can't run faster. Four years later, you will see people running faster. It is the same with costs. Investors often ask ‘is this all?' No it is never all. You can always drive the costs down further.” Now for example we are busy setting up shared service centres and getting 30% savings on the cost of transactional finance.”

Hunt for cash

The "Hunt for cash" programme was launched to an organisation that had traditionally focused on EBIT, and required a new mindset to be adopted; Hooft Graafland compared it to learning a new language.

"As finance people, we always talk to people about the need to increase your profit and sell more," he said. "Now we were talking about what we should do less, which was a change in mindset. We developed web-based training modules and set up workshops in operating companies, just to make our people aware what cash and cash management is. If you are only EBIT focused and incentivise people on the EBIT, you will find that production runs are much longer and you standardise in the sense that because there are long production runs, there will be high inventories as a result. You give more credit to your customers, because you can get a higher price. You pay earlier to your suppliers because you get a discount. That is all good when you look at EBIT, but not good for cashflow."
The way in which the concept was communicated to employees was important to Hooft Graafland, as well as driving cross collaboration within the organisation.

"We didn't call our programme 'survive' or something like that. No we named it "Hunt for cash" something fun - you should absolutely not give the impression that you are in financially difficulty. What is also important is that people don't see it as a finance exercise. SKU rationalisation for example cannot be done by finance and requires supply and commerce coming together, and credit management needs a strong partnership within your commercial organisation.

As well as focusing on payables, receivables and inventory to improve cashflow, another aspect Hooft Graafland touched on was divesting non-core assets

"If you look deep into operating companies, the amount of things you can divest that you can find is staggering. When people move on and management changes, assets, however, can remain in the company, so you need to make an inventory of the real estate and question why it is on the books and whether it is necessary or if it could be used for different things. Above every pub we own, for example, you have a whole building on top of it - how do you exploit this - do you want to keep it? Do you want to sell it? In addition to divesting real estate, old brands, equipment and spare parts can also be sold off, which ultimately make the management of the company more proper and focused."
The move toward a cash-centric approach meant changing Heineken's financial systems and processes.
"Our cashflow on balance sheets was under developed and, before you get into forecasting, you need first to know month by month where you stand. So we changed our systems and got into monthly reporting on balance sheets and cashflows. We also introduced into our measurements the notion of 'cash conversion' [free operating cashflow as a percentage of net profit before minorities]."

Hooft Graafland reflected on the how the cash created by the programme was put to use.

"The important thing for us was that two years later in 2010, we could do the FEMSA acquisition. After a very strong first year in the Hunt for cash programme, we said we could do it and joined the race that other players were in, and ultimately we bought the company. By telling your employees that thanks to what you have done across the organisation, we could buy the company, it creates an enormous positive energy and at the same time also the feeling of 'Oh - now we have to go again' but ultimately it is good."

Granular insight gleaned from subprocesses

Following the keynote address NV Tiger Tyagarajan, CEO and president of Genpact, provided a supporting address that focused on the importance of companies understanding and improving each step of an end-to-end process. A couple of examples were presented that illustrated how process step changes can release cash in the source to pay cycle. The first example related to indirect purchases being paid for by companies immediately due to ERP systems not being configured correctly.

"Unnecessary immediate payments can occur when there are no contract terms, resulting in ERP systems defaulting to immediate payment. Now that's a granular step and if you fix that step then you could have a substantial impact on your payment cycle for payables."

The second example looked at the situation when companies don't properly capture and follow-up on benefits associated with a purchase. Tyagarajan argued that these benefits are often twice as valuable as purchase price.

"We have seen examples where multinational companies have contracts with technology providers such as laptop companies, " he said. "You have a wonderful contract that includes a 5% discount when the 1,000th laptop is purchased both on future and past purchases. Do you think that companies track the 1,000th purchase? The answer is no.

"It's nuggets like these that help unlock working capital outcomes by granular benchmarks and granular execution on individual sub processes," argued Tyagarajan just before the Q&A session hosted by Dick Paul of American Express.

Words: Steve Dunkerley

Click here to read the interview with René Hooft Graafland as published in the spring edition of FDE.

Forty delegates from a range of multinationals joined together in London for the latest of FDE's breakfast briefings. The event, which was sponsored by Genpact, REL & American Express Global Corporate Payments, was held at Stationer's Hall, an historic venue for a discussion focused on growth in the world's newest economies.

Alan Gillies, vice president of American Express, opened the briefing with an interesting evaluation of the dilemma facing businesses and governments in a time of economic crisis.

"The public is pressuring governments that don't have solid majorities to rethink their austerity measures and replace them with spending," he said. "Essentially the same conundrum faces all of us in business and indeed in finance. Do you save to protect growth for the long term or do you spend to stimulate growth?"

Reflecting on evidence from the fifth annual American Express/CFO Research Global Business and Spending Monitor, Gillies showed how only one in four UK CFOs are anticipating a return to economic expansion in the forthcoming year.

"In the UK, finance chiefs have adopted a far more conservative approach, with plans to preserve cash reserves, implement tight cost-control measures and make cuts," he said. "A risk-averse strategy could leave UK companies better placed to reap growth opportunities that will come with recovery. But the question also needs to be asked: what does this mean for your business and your position in the global market?"

Although conservative values may dominate a continent facing recession, Gillis was clear that for most finance executives, growth prospects are still deeply tied to emerging market exports. And that claim gave Tom Singer, CFO of IHG, the perfect moment to deliver his keynote speech on driving growth in emerging markets.

Singer is responsible for corporate and regional finance at IHG, the world's largest hotel company by room number. As with most multinational corporations, emerging markets are a key growth area for the business, which currently has more than 1000 hotels in its development pipeline.

"We are all interested in emerging markets because they hold out the promise of long-term growth for our products and services," he said. "Some of the statistics about future travel flows give us cause to reflect. Outbound trips by Chinese travelers will grow from 70 million to more than 100 million by 2015, overtaking Germany and the US.

"India also could have eight times more hotel demand by 2030, with an annual demand equal to France, Spain and Italy combined."

Emerging markets can be a broad, unhelpful term, particularly for countries such as China who see themselves as anything but 'emerging'. Singer reflected on that complexity by outlining IHG's "three definitions of the market": major markets, priority markets and key city strategy.

"Major markets, like China and the US, must already be very large and have good potential for further growth," he said. "The benefits of scale are most compelling here; we can add units at low additional cost and justify tailoring our brands locally to the needs of the market. Priority markets also make an important contribution to our earnings, but their growth might be limited in the future. The demand trends in this case are usually concentrated to a few key cities, restricting our activity to centres where we typically enter with our upscale full service brands.

"Finally, the key city strategy covers about 20 of our country markets. We want to make sure we're well positioned in those markets that have the potential for future growth, developing our position in countries like Brazil and Indonesia."

Singer spoke clearly about the need to secure a leadership position in foreign markets, getting the best development sites, becoming the first choice for owners and attracting the finest human capital. With more than 80% of all money spent on accommodation arriving in the top 20 hotel markets, building that kind of scale is crucial to success.

Unsurprisingly, China and India also featured frequently in Singer's address. IHG has the largest presence in China of any international hotel group, with 170 currently open and 155 in some stage of development. Underlying the company's approach is a rigorously crafted "strategic distribution plan", used to determine exactly what cities to penetrate and what brands to do it with.

"Why are we winning in China?" Singer posed. "We have nearly 30 years of experience in the market, which gives us the best known and most preferred brands, as well as the longest established loyalty programme. We also have a leading reputation with the development community and government, and a clear city-by-city development plan. We've recently developed and launched a new brand - Hualuxe - which is specifically tailored to the Chinese guest; we're the first western hotel company to do so. And finally, our people infrastructure is second to none, with over 300 people in our offices and a successful Academy Programme providing a stream of trained staff and favourable CSR credentials."

India is another of IHG's priority markets, with 37 hotels in current operation and up to 150 planned by 2020. While the country's economic value is clearly significant, Singer emphasised the importance of grappling with its social and political differences.

"India is a democracy - the government has less influence and it takes longer to do things," he said. It's certainly not an easy place to do business; you need the right expertise and partners on the ground. We've learnt from our past mistakes and have taken several years to eliminate some poor hotels. Now we have a leading position, supported by 50 years of experience. We understand the market and have dedicated resources on the ground."

Before taking a brief question and answer session, Ahmed Mazhari, SVP Europe for Genpact, delivered a supporting address that aligned with many of the points raised in the keynote address.

"There are interesting parallels to be drawn with our company in business process management," he said. "Tom spoke about designing brands specifically for the sentiment of the Chinese consumer. We have a similar example at our organisation, building an area focused specifically on the needs of the Indian company. Customising really is very important."

A series of interesting points were raised in the following question and answer session, which was hosted by Oliver Wilson, senior associate at REL, the global working capital management specialist consultancy. He asked what barriers to entry exist in emerging markets and how differences in political systems can manifest in attitudes towards business. Singer's answer acknowledged that institutional differences are important, but argued that most governments are receptive to travel and tourism because of its potential wealth and job creation. Rosslyn Haith, vice-president of business development at Genpact, suggested that with services in China possibly better than they are domestically, an opportunity for cross-fertilisation exists for multinational companies. Singer agreed that lessons learned oversees can and should be implemented in home markets.

A series of interesting points were raised in the following question and answer session, which was hosted by Oliver Wilson, senior associate at REL, the global working capital management specialist consultancy. He asked what barriers to entry exist in emerging markets and how differences in political systems can manifest in attitudes towards business. Singer's answer acknowledged that institutional differences are important, but argued that most governments are receptive to travel and tourism because of its potential wealth and job creation. Rosslyn Haith, vice-president of business development at Genpact, suggested that with services in China possibly better than they are domestically, an opportunity for cross-fertilisation exists for multinational companies. Singer agreed that lessons learned oversees can and should be implemented in home markets.Click here to read the interview with Tom Singer in FDE magazine

Listen to the supporting address by Tiger Tyagarajan, President & CEO of Genpact

Listen to the Q&A session

Driving sustainable cost efficiency and organisational effectiveness

Group finance director of HSBC Iain Mackay was the keynote speaker at Finance Director Europe's (FDE) latest executive breakfast briefing. He highlighted HSBC's plans to save costs over the next three years through a combination of business model consistency, the streamlining of IT and global function and process reengineering.

Monday 21 November saw the latest Finance Director Europe (FDE) breakfast briefing, which was this time held at the Ritz Hotel, London. Attendees from a broad range of multinationals were there to hear Iain Mackay, group finance director of HSBC, discuss the group's global cost management programme. He was supported by NV ‘Tiger' Tyagarajan, president and CEO of Genpact, who talked about his company's own current efforts to improve the effectiveness of its client's global operations. The introductory address was delivered by Gaétan de L'Hermite, director of group support services at Compass Group.

Having taken up his present role in December 2010, Mackay has worked closely with CEO Stuart Gulliver in setting out targets to simplify HSBC's global business models for their four global businesses – commercial banking, retail banking and wealth management, private banking, and global banking and markets

“Since 1 January, when Stuart became CEO, a key element of our strategy has been creating common processes and standardised platforms in the 85 countries where we are currently present in the world,” he said. “In doing this, we believe that we will be able to converge on a much smaller number of platforms from both a technology and a process perspective, and offer the same outcomes for our customers regardless of whether they are banking with us in Shanghai, Mumbai, Hong Kong or London.”

"The streamlining of IT is a key element in taking cost out of the organisation," he said. "However, as a bank, we have not had a particularly strong engineering culture compared with the likes of GE".

“Imposing one standard, we find, is incredibly costly,” Mackay explained. “The notion of one system supporting everything is a bit of a pipedream. It has been tried throughout the years, both within HSBC and other organisations, and, generally speaking, it has not been successful.”

While HSBC will veer away from absolute standardisation, according to Mackay, from a technology standpoint, the group is in the process of reducing its variation through imposing a common consolidation system.

“The streamlining of IT is a key element in taking cost out of the organisation,” he said. “However, as a bank, we do not have a particularly strong engineering culture compared with the likes of GE, where I worked for ten years with Tiger. Trying to instil that same discipline and the associated broad base of skills in a 146-year-old bank is enormously challenging, and while it helps, it won't get us there alone.”

Mackay also made reference to HSBC's long history, in which, for the bulk of those years, the group “effectively comprised a lot of separate banks with a common set of policies and culture.” Today, its approach is centred on a common way of supporting customers across multiple jurisdictions.

“We are reengineering our global functions,” he said. “When I joined the organisation in July 2007 [as senior executive vice-president and CFO, HSBC North America], it was still largely run as regionalised finance functions across Asia, Europe, the Middle East, Latin America and Northern America – five wildly different core geographies.

“So, one of the things we have done is to create global functions, covering everything from human resources and risk functions to legal and finance functions and technology teams. We manage one set of functions with highly consistent standards around recruitment, training, rewards and consistency. This has given us the ability to implement a culture and set of behaviour around how we reengineer a process.”

Mackay believes the main challenge in reengineering processes will come in facilitating interaction between these functions and HSBC's businesses.

“It is all very well to rebrand our global businesses and call them ‘global', but we now have to ask ourselves how we can get them to deliver a wholly consistent service,” he said. “Through analysis, we've identified markets in each of the businesses where we need to be in terms of global trade. HSBC started as a trade bank in 1865 and that is still what we do today. Whether it be large corporates like General Electric or SMEs, which constitute a huge base of exporters in the UK, France and Germany, who in turn do business with the Americas and Asia, we have the connections on both sides of the transaction to support.”

The target $2.5bn-$3.5bn in sustainable cost saves over the next three years represents around 6% of HSBC's global cost base. In facing the current Eurozone crisis and its potential knock-on effects on trade flow, HSBC is set to adopt a hard-line stance in order to achieve these objectives.

“The eurozone challenges severely contract opportunities to generate revenues in the interest rate and credit markets,” said Mackay. “So, as our revenue comes down, we believe there is a greater need to go after costs even more aggressively in order to achieve our key target – a cost efficiency ratio of between 48% and 52%.”

Mackay is optimistic in successfully implementing these changes into HSBC's global business model. Future progress seems set to be underpinned by organisational effectiveness, both on a strategic and tactical level.

“It may sound mundane, but from a HSBC standpoint, it is somewhat revolutionary,” he said. “While it may not be particularly complex, it a significant cultural change for us. This is the reason why we have set ourselves a two-three-year timeline, so as to drive productivity, quarter over quarter, year over year, within the organisation.”

In his address, Mackay alluded to the General Electric connection between himself and supporting speaker, Genpact's Tiger Tyagarajan. Mackay spent over a decade at GE, including roles within its consumer finance and healthcare businesses. This was at a time when Genpact formed part of GE, then known as GECIS (GE Capital International Services), which provided back office support to the group.

Tiger chose to speak on a number of client observations, linking closely to the themes raised by Mackay. This included the need to “variabilise” costs, reorganise business processes, make better use of data and drive effective business process outcomes.

He also spoke on the problems and unnecessary costs often created within business functions of global companies, not as a result of glitches within a function itself, but due to defects created somewhere else in the organisation. He made reference to order-taking in the sales function as a classic example of impacting on the performance of the finance function.

“Silo challenges like these are why it is important to view companies, not in the context of functions such as sales, HR, finance or procurement, but more in terms of an end-to-end process,” he said. “We believe that companies are a conglomeration of 10-20 enterprise level processes coming together to deliver outcomes of those processes such as source to pay, record to report and order to cash”

This thread was revisited during the Q&A session which followed the speeches, hosted by Andrew James of REL, in which Mackay also spoke about the need to break down silos on both a local and business level.

Another question pertained to costs created by regulatory changes in the financial services industry. Mackay highlighted COREP – the request from the European Banking Authority to gather 7,000 standardised data sets per quarter from a broad population of 90 European banks – as one of the greatest challenges.

This was followed by a final query on how to successfully manage staff in times of change and get the best from them. Mackay's response was to narrow the focus, set clear goals and examine processes prior to diagnosing and prescribing solutions.

BT group finance director Tony Chanmugan was the keynote speaker at the recent FDE drinks reception. He discussed the benefits of a cash-centric growth strategy and the importance of maintaining high ethical standards.

The Ritz hotel in London was the venue for Finance Director Europe's inaugural drinks reception on Thursday 27 October. Around 30 senior executives from a broad range of multinationals heard BT's group finance director Tony Chanmugam discuss cash management strategies and how they helped his company emerge from a particularly difficult period. He was introduced by Pascal Baker, Capgemini's director of BPO, Europe.

When Chanmugam took up his position in December 2008, BT was on the verge of having to take a charge of £1.6 billion, largely related to two major contracts within the company's Global Services division. Chanmugam explained that "some big steps would be required to make the business right."

The first of those steps was a move towards a more cash-centric approach. BT invests around £2.6 billion of capital expenditure every year in its business, while at the same time seeking to reduce net debt, support the pension fund and make dividend payments. The most reliable and visible way of ensuring these obligations could be carried out was, in Chanmugam's view, to maximise cash generation. Moving the company in this direction would have to start with a change in culture.

"For me, cash provides oxygen for the business to grow," he said. Although generating cash became a fundamental driver, it was imperative that it be done in an ethical way. For example, BT won't defer supplier payments to hit a quarterly cash target, a practice that becomes increasingly common in a difficult business environment.

Counting the cost

These efforts coincided with a broader process of cost-cutting. The company's total labour costs were reduced, BT reduced the amount it spent on consultants, and renegotiated some supplier contracts.

Further savings were made by taking what Chanmugam describes as a more forensic approach to the customer experience. By examining customer interactions from end-to-end, the company has been able to re-engineer many of its processes to make them cheaper and more effective. All of these measures have combined to greatly reduce BT's debt load and boost its liquidity. They also stand the company in good stead as the search for cost savings moves to a deeper level.

"We used to spend about £3.2 billion a year on capex, a phenomenally high number," Chanmugam says. "We've taken that down to about £2.6 billion. Over the last two financial years we've taken about £2.8 billion out of our cost base. We look to do things forensically and ethically. That's important to me."

The keynote address was followed by a short talk from Katrina Cliffe, vice-president and general manager of Commercial Card at American Express UK. She discussed the importance of working capital management and how certain products that support indirect spend can be used to expedite payments between buyers and suppliers. The floor was then opened up for a Q&A session in which Chanmugam discussed, among other things, the importance of cashflow as a metric to gauge performance during an economic downturn, the best way to manage a change in company culture, and how the nature of a business affects how it should balance its cash considerations.

Dr Brian Gilvary, deputy group chief financial officer of BP, was the keynote speaker at Finance Director Europe’s most recent executive breakfast briefing. He discussed the financial implications of the Gulf of Mexico oil spill and how BP has emerged a safer, more robust and more risk-aware organisation.

On 1 June, 40 finance directors and risk officers from across industries met at The Dorchester Hotel in London for Finance Director Europe’s executive breakfast briefing. Introduced by Brian Parrott, minister-counsellor and senior trade commissioner at the Canadian High Commission in London, an arm of Invest in Canada, the keynote speaker was Dr Brian Gilvary, deputy group chief financial officer of BP. His talk was on the subject of financial liquidity and risk, and how companies must always be prepared to think the unthinkable.

Dr Gilvary began his presentation by emphasising that the tragic incident in the Gulf of Mexico was a matter of enormous regret to the company and all its employees, and that no-one at BP will ever forget the 11 lives that were lost on 20 April 2010. The incident and the subsequent oil spill has had a deep and profound impact on everyone at BP. Dr Gilvary then went on to talk about planning for the possibility of a low-probability, high impact event like this tragic occurrence.

"The Gulf of Mexico oil spill was very much a black swan event," he explained. "It was an extremely low-probability, high impact occurrence that the industry did not have a solution for, although we do have one now. In addition to the inevitable impact on the company’s reputation, the accident and the ensuing clean-up operation had a dramatic effect on BP’s liquidity position. In full-year 2010 the company spent around $17 billion in cash payments, which is twice the value of some smaller European economies. Total charges to its balance sheet amounted to $40.9 billion, which made remaining liquid a huge challenge.

"In terms of the clean-up operation, there are only a few companies that could have put a response this comprehensive in place. At one point, we had 47,000 staff working on the incident (BP’s existing workforce is 80,000). We had close to 6,500 vessels and 125 aircraft in operation and were dealing with 12,500 claims a day. Financially, this had a heavy impact."

Efforts to regain liquidity were further complicated by the reactions of ratings agencies to BP’s predicament. Moody’s and S&P downgraded the company’s AA rating to Aa2 and AA-, respectively, while Fitch dropped its rating to BBB. Suddenly, accessing funds became much more difficult.

"When you are an AA company it is a very comfortable place to be," Gilvary explained. "We could go onto the overnight commercial markets and raise $5 billion of cash – a cheap way to borrow money. With the downgrade, we had a situation where we couldn’t access commercial paper or the bond market, and our credit default swaps weren’t trading particularly well. In addition to dealing with the incident on the ground, we had to do some pretty extraordinary things to stay
afloat."

The first of these measures was to sit down with the banks and establish which of them wanted to maintain a long-term relationship with us. Once this was done, BP looked to increase its access to bank facilities with the eventual aim of accumulating a cash buffer of $10 billion, which Gilvary describes as the key number. This proved a successful strategy.

"In May, we had something like $5 billion of facilities that we could access," he explains. "By the end of the second quarter we took that figure up to $17.25 billion through a mix of revolvers, swing facilities and other constructs. In a crisis, you find out who your relationship banks are. They may not be the ones that you thought!"

BP was also able to take advantage of its vast asset base. It dealt in asset-backed paper, selling forward $5 billion of Angolan crude, and divested some of its assets for highly competitive prices.

"The first transaction we carried was at the peak of the crisis in the middle of June," Gilvary said. "We had multiple bidders for a $7-billion deal, with Apache the eventual winner. For the first time we insisted on a deposit up front and we have continued to do that. These assets very rarely come on the market and so bidding was competitive. It was far from being a fire sale."

All of these measures were part of an attempt to strengthen BP and make it an organisation capable of dealing with any eventuality. The company took the opportunity to examine its underlying fundamentals, the efficacy of its risk management systems and the true likelihood of default. As well as securing some of its cargoes using letters of credit, the company installed an early warning system and a series of stress tests to identify toxicity before it has the chance to spread. Following the outcome of an in-depth internal investigation, BP has taken substantial steps to improve safety and risk management at the company and continues to work toward implementation of the recommendations made by the investigation. In addition we have shared the lessons we have learned across industry and with governments and regulators around the world., a "More fundamentally, the market has long judged companies on production growth. We’d like to put the emphasis back onto value. If we think we can add value to an asset through investment, it will stay in the portfolio. If it’s an asset where we do not see value and are unlikely to invest, others may be better placed to do this."

Dr Gilvary’s talk was followed by a supporting address from Patrick Cogny, CEO for business process outsourcing specialists Genpact, before the floor was opened up for a Q&A session chaired by the head of equity advisory at REL, Daniel Windaus.

When asked about some of the implications of the Deepwater Horizon incident, Gilvary commented that, based on what the company has learned through working with others in responding to the tragedy, BP is now able to offer of body of knowledge in crisis management that is valuable to governments and the industry as a whole.

Over 50 senior finance leaders from multinational companies such as BP, GE Healthcare and Unilever met at FDE's December breakfast briefing held at One Great George Street, Westminster to hear Tim Morrison, EVP, Finance for Royal Dutch Shell's Downstream, share how the finance function has contributed to restructuring in its downstream division.

The division includes a global network of oil refineries and chemical plants, 44,000 service stations, and some 60,000 employees. The restructuring activity which has been underway for some years has been considerable.

As Morrison explained: “It was a combination of re-engineering the business model, global process standardisation and a global ERP implementation. It has included simplifying how we sell to customers, improving hydrocarbon management and changing purchasing processes. We have also been concentrating our business presence and we are well down the road on that.”

Morrison drew attention to the position of finance – at the end of many processes: “We're at the back end of many processes and, if the front end goes wrong, the problems will flow through to us in the end. This gives us a serious interest in helping get process change and data management right.”

Another observation Morrison made was “The programme's strategic importance to management is vital, otherwise you may not stay the course. The sheer extent of change means that it is expensive, hard work and in some areas things get worse before they get better. This can happen in customer service, information supply, quarterly closing processes and so on.”

In terms of the people who oversee a very complex change project, Morrison commented on the great benefit of level-headedness, especially during the early phase when it's bound to be messy: “You've got to be able to tell the difference between ‘It's a messy change but I‘ve got the right people and they're doing the right thing” and “This really isn't going right and we need to change course.”

“In one country we did have significant problems with the Downstream ERP implementation and it took quite a while to get it right, but we rapidly built what we learned into all future implementations.”

Morrison also commented: “We often spend our time looking for incremental change – a few percent improvement here or there, which is fine, but these large programmes also deliver opportunity for ambitious step changes, for example by introducing new self service methods of doing business or by some change which dramatically reduces error rates. Finance can be well positioned to help find these step changes, partly because we can help business managers put a value on the choices and trade offs they face.”

Alongside the Downstream reorganisation, the Shell finance function also put in place its own overhaul.
There were two key drivers: “One was that the function was simply too expensive and the second was that we needed to be much better at process management.” The overhaul included moving a significant amount of the process work to back offices around the world, where Shell now has some 5,000 staff. “With the concentration of work we have been able to improve performance, lower costs and have high quality, dedicated finance process management.” The function has been able to both drive through its own improvements and maintain support to the business through a pervasive change programme.

Richard Dallas, founder of Lloyds Bank's new wholesale arm, thanked Morrison for his keynote speech and gave a supporting address before John Franke of the Compass group opened the floor for a question and answer session.

On major challenges, Morrison remarked that, especially early on, major change programmes may well be too complex for any one individual to understand fully. It helps if this is understood and taken into account in the way the programme is run.

When asked about what metrics were used to share success stories internally, Morrison said: “The most effective approach is to make the examples of success, with metrics, as specific and as concrete as possible. Measuring the overall success of such a change project is actually rather difficult, because of the problem of attribution – for example, how much of improved performance can be attributed to the programme itself and how much, say, to stronger marketing efforts enabled by the new system.”

He concluded: “I don't want to suggest it's all gone smoothly and it's very resource intensive. We still have a way to go but we're at a tipping point now, when you feel that uncertainty is converting into enthusiasm across the business. People are starting to get excited as they see what they can do with what we've built.”

The next FDE Breakfast Briefing will be held in London, in May 2011. Further details to follow on this site!

At June's FDE business breakfast, Paul Kenyon, AstraZeneca's SVP group finance delivered a presentation that highlighted how AstraZeneca is embedding collaboration and business partnering into its finance function. Ian Duncan reports.

On a rare sunny London morning, finance leaders gathered at the Dorchester Hotel for the first in a new series of FDE business breakfasts on collaborative finance, hosted in association with Genpact, Lloyds TSB Corporate Markets and REL. Participants at the breakfast were drawn from across industries including telecoms, automobile manufacturing, transportation and media.

Ahmed Mazhari, Genpact's SVP UK, welcomed keynote speaker Paul Kenyon, SVP of group finance at pharmaceutical manufacturer AstraZeneca. With the World Cup only two days away, football was the dominant metaphor - unfortunately for Mazhari whose home nation of India ranks, as he pointed out, 114th in the world.

Gamely suggesting that if he was offered a £6 million salary, he'd be happy to take on the role of coaching England, Kenyon introduced his Gerrard, Lampard and Rooney - the other members of his senior finance team Ian Brimicombe, Sean Christie and Graham Colbert.

Kenyon started by acknowledging that the pharmaceutical industry faces a unique challenge. Its current high margins make improving efficiency and finding ways to cut costs an uphill struggle. The temptation is to ask, why bother?

The answer is that AstraZeneca is perched on top of a 'patent cliff'. In 2014 a number of its biggest products will be released into the wilds of the generic market and the company needs to maintain high levels of investment in R&D; to find future growth. The topic of his presentation was how the finance function can effectively support core business activities, a subject relevant even in industries not facing such a clear challenge ahead."

The company has 1600 employees in its finance function performing three core roles: business partnering and support; specialist finance; and transactional finance. All three have undergone significant change in recent years but it was the first on which Kenyon concentrated. To support the transformation, AstraZeneca has centralised its organisational structure as well as rationalising its systems and processes. Finally, and most importantly from Kenyon's perspective, the company has made major investment in people and skills.

"As we move to a more geographically focused organisation and from having a lot of generalists to many more specialists, there is a real need to take your people with us," he said. "We're asking people to work almost exclusively on business partnering, which is a big shift and requires them to be quite brave about the change. There's a big piece about equipping them to make that transition but also exciting them about it and demonstrating that these are skills with future utility."

The picture has not been all rosy, Kenyon acknowledged. The shift towards the creation of global centres of excellence for specialist finance and the outsourcing of many transactional functions to Genpact initially cannibalised the role of business partners at a time when they should have been becoming more important.

"We found was that we were not having a terribly positive conversation with our business partners," he explained. "They felt it was just a land grab away from them and not a terribly motivating place to be."

Realising this, the company turned the process on its head. The focus now is on creating clearly carved out roles for the business partners centred on a six-stage process. "Essentially we've defined the performance and strategy cycle so you set the targets; develop the business plan; allocate resources; set short term forecasts and budgets; measure test and mitigate risk; and align the rewards and consequences," Kenyon explained.

The company's 2007 acquisition of MedImmune, a manufacturer of vaccines, for $16 billion acquisition was financed through borrowing, putting it in a net debt situation for the first time in working memory. This offered a chance for the finance function to change the way it measured its success.

"It was a great catalyst for us because it was a chance to say it's not just about growth," Kenyon said, "it's about earnings performance, working capital and cash flow. It has enabled our business partners to rally around something other than the normal metrics that we had in the past."

To build on this change for the long term, AstraZeneca established a finance knowledge centre after conducting an extensive review of its business partnering practices. For Kenyon it highlighted areas where the company was performing well but also revealed targets for future improvement. Looking to a model established by Unilever, the company worked to create a more robust finance community that provided employees with information and insights but also enabled them to drive progress themselves.

In support of the shift, members of the finance team were brought together for a summit. "It's something I'd really encourage you to do," Kenyon told the audience. "It's easy to say we're constraining budgets and we can't afford the amount of travel, but getting people into a room to talk through stuff and spend time with senior management is really valuable in terms of getting people behind you on the journey."

Thanking Kenyon, Mazhari followed up with some further points on the role of transactional finance, praising AstraZeneca's investment in systems and processes. "I haven't seen the passion and commitment I've seen in AstraZeneca right from Simon [Lowth, CFO] downwards through the organisation," he said.

In a question and answer session led by Daniel Windaus of REL, the discussion turned towards outsourcing customer facing processes such as order-to-cash. Kenyon acknowledged that these could be sensitive but argued in favour of a market by market approach. Mazhari added that horizontally slicing processes can allow companies to handle customer relationships in-house while gaining efficiencies in other transactional areas.

It was clear from the morning's discussion that AstraZeneca has made great use of partnerships to drive improvements and, Kenyon noted, the business is always looking out for best practices it can adopt and chance to share its own knowledge.

Senior executives from some of the world’s largest companies, including Shell, T-Mobile, Nestle and GE Healthcare, convened at London’s Park Lane Hilton on 4 December for the latest instalment in a new series of FDE Executive Breakfast Briefings.

This season’s events, supported by Genpact and Santander Corporate Banking, are running under a title that chimes particularly well with these straitened times: Cash is King. Tackling this theme and the challenge of aligning finance and operations to improve working capital was keynote speaker Jeff van der Eems, COO and CFO at United Biscuits.

The third largest biscuit company on the planet, responsible for 14 million unsupervised transactions a day, was rocked in late-2007 and early-2008 by the twin threats of skyrocketing commodity prices and a global financial crisis that was having dire consequences for many of the organisation’s suppliers, customers and consumers.

This challenging operating environment, as well as internal drivers, saw van der Eems and his team instigate a real drive towards cash savings. "Why was that so important to us," van der Eems asked his audience. "In one word: leverage. In two words: leverage and recession." He went on to explain where the initial internal motivations arose: United Biscuits being bought in a secondary buyout by private equity in December 2006 – ‘at the height of the buyout boom" – in a deal one would be unlikely to see the like of in the current market.

"Luckily we were only leveraged at 7.2 times EBITDA rather than the peak of more than nine," he announced to chuckles of recognition. "We made enough to pay the interest and not a great deal more. That sort of scenario tends to focus the mind."

When wheat and palm oil prices tripled and cocoa costs doubled the following year such focus was vital, but nothing could have fully prepared the company for the worst economic downturn in living memory.

"Favours or new money from banks became an impossibility,’ van der Eems explained. ‘Customers were going out of business – Woolworths was an important client of ours and suddenly wasn’t there anymore. Consumer confidence fell through the floor. New issues were popping up daily – who have ever given credit insurance that much thought?’

Using Hackett benchmarks to compare performance against other food companies, van der Eems was already aware that CAPEX spend and working capital C2C at United Biscuits were below its global peers and that DPO and DSO did not compare favourably.

‘The need for change was there as a result of leverage recession and fear,’ he explained, ‘and it converged nicely with the opportunity that high levels of working capital would bring.’

So he set about instigating those changes. ‘We were pretty tight on our CAPEX spend and expected returns,’ the CFO explained. ‘We were clear that CAPEX today is tomorrow’s EBITDA. Therefore, a lot of focus was paid to working capital as it was our biggest area of opportunity. We’d known for years that our working capital was high but just couldn’t get at it.’

Van der Eems cited a quote from the Financial Times that helped emphasise the challenge they had on their hands. ‘The FT renamed working capital as "waiting capital", just to highlight the cash it tied up,’ he said. ‘We’d had a few abortive attempts at rectifying the situation. Procurement ran off and extended payment dates, but the terms were such that we had to order in twice as much stock and the result was cash neutral. Supply chain also sought to lower stocks,
but the director wanted to know whether I wanted them lower at year-end or at the end of each quarter. Again, the gain was negligible.’

This time, the approach was rather different and its success depended upon two fundamental requirements: the process had to be conducted in a cross-functional and sustainable manner.

The first step was measuring. "It sounds boring and simple, but you have to analyse these things down to the most basic level," van der Eems explained. "We also ensured that measurements were consistent. In the old days, people were measuring working capital, but different departments did it in their own language.

"The second thing was enlisting outside help; finding a consultant with rifle shot experience who could bring in a methodology and framework that could bring with it a fully focused approach. Such expertise has huge benefits."

What followed – the setting of objectives, understanding where opportunities lay, picking out quick wins to get the ball rolling and selecting champions to help lead the charge – would be recognisable to any executive with experience of implementing change programmes. In order to increase the likelihood of success, however, United Biscuits ensured all stakeholders were brought onside.

"Finance has to lead it," van der Eems acknowledged, "they’re navigators of the business and can see how the dots connect. However, you won’t save the cash and sustain it unless you get the people who actually touch the cash involved: procurement who set the terms, sales guys who chase collections. We got these people on the steering committee from the very beginning."

This involved a great deal of communication and education. "Never overestimate the level of cash awareness in your business," the CFO warned. "There are a thousand things happening in your organisation that effect the cash coming through and individuals need to understand what they can do to help change the patterns."

For van der Eems, the success of this collective effort brought to mind an old Harry S. Truman quote: "It’s amazing what you can get done if you don’t care who takes the credit." By the end of the process, United Biscuits had a list of 80 ideas that would have collectively saved over £100 million. In the end, £40 million was released.

However, the speaker was keen to emphasise that cash savings should not be the sole focus of any successful operation: the best reason to save cash is to invest it. "This was achieved in the context of growing our top and bottom lines five years in a row," he explained. "Make sure you’re investing in the business in order to grow. If you can do that and release cash, fantastic."

The next FDE Executive Breakfast Briefing will be held in London in the Q2 of 2010.

London's Park Lane Hilton hotel on 30 June was the setting for the opening event in a new season of FDE breakfast briefings. While previous briefings addressed primary finance concerns such as creating business impact through BPO and controlling the financial supply chain, this latest set of seminars tackled a maxim that has taken on particular resonance during the economic downturn: ‘Cash is King'.

Attendees included senior executives from some of the world's largest companies, including BAE Systems, BG Group and BHP Billiton. They had convened to hear a talk from Philip de Klerk, CFO of the olefins and polymer business in Europe at INEOS, the largest division of the biggest privately-owned company in the UK. The chemical giant has seen its sector hit badly by the financial events of the past two years.

The combination of a covenant waiver request and a major competitor declaring Chapter 11 bankruptcy saw its credit rating downgraded twice in the space of six months. Rising costs and a slowdown in sales have forced the group into taking some tough decisions in an extremely short timeframe and de Klerk was in town to discuss how his organisation had addressed these challenges head-on.

Andrew Groth, senior vice-president and head of business development Europe at Genpact, co-sponsors of the event alongside Santander Corporate Banking, introduced the keynote speaker. He put the theme of this series into context, citing the Aberdeen Group's finding that companies with efficient processes improved DSO over their competitors by 25 to 40%.

"Take a company in the financial services sector with $50bn of assets under management," Groth explained. "They can improve their losses ratios by $500m to $700m. The importance of looking at all areas around cash and cash management, regardless of the business we're in, cannot be overstated."

De Klerk agreed, saying that during times such as these cash has a particular resonance because of its value as an objective measure of a company's health. "We used to focus on EPS or EBITDA and cash was more or less a second thought," he explained. "But it is truly measurable. Some companies choose operational or free cashflow, but at Unilever [de Klerk's previous employer] we changed the meaning of free cash flow every other year. Cash is the most objective measure you have for gauging how a business is doing."

But financial events have made accessing and maintaining liquidity a major challenge for the CFO. A more risk-averse climate has seen suppliers demanding changes in payment terms, with INEOS losing €200m of credit as a result. A steep decline in orders from September onwards has also forced the group to make some drastic decisions. A cash fixed cost reduction of 10% was made in the fourth quarter of 2008, with a further 10% planned for 2009. Cash available for CAPEX fell from €600m to €250m virtually overnight. Working capital, particularly in regards to stock levels, was reduced by a further 25% in the first quarter of this year. Reporting, measuring and forecasting techniques were overhauled and investment was made in a new ERP system.

"There are trade offs," de Klerk told the delegates. "Can we maintain levels of customer service with lower stocks? Do we want to invest in working capital or spend on growth? The challenges are constant."

One area where de Klerk was insistent upon compromises not being made was in the search for new customers. He cited the example of a large potential partner seemingly severing its ties with a previous supplier and approaching INEOS for business. Payment terms of 45 days were agreed only for it to become clear that after 44 the new client had financial problems.

"You need to be really careful these days when selecting your customers," de Klerk explained. "Some of our sales guys are eager to explore this new customer base and that makes it difficult for those of us in finance to tell them to hold off a while. Yes we need cash, but if they can't pay we have nothing."

Such an approach is counterbalanced through the way in which trusted customers are treated. While de Klerk admitted that he studies the overdues every week, firing off calls and emails to ensure that the people responsible are aware events are being closely monitored, he also encourages a more holistic approach. He told the room of his regular conversations with the CFOs of his top ten or so customers, managing expectations and ensuring both parties were fully up to speed with developments, and the compromises for those in difficult positions. "We know some of our customers are having the same problems in regards to relatively low supplier credit and the like," de Klerk said.

"We ask whether there's anything we can do to help. For simple things such as covenants, some may need more cash in the bank at the beginning of June than they do in September. You can do a bit of wheeling and dealing and try to manage proactively. People are very appreciative that we're going the extra distance."

This sentiment encapsulated a major theme of de Klerk's address: the importance of trust and its erosion as a result of the financial crisis. "I am a great believer in the value of trust and as we emerge from this cycle suppliers, customers and banks are going to need each other more than ever," he said.

"Open, transparent relationships are vital and I like to share the information I have on the company and our plans. INEOS is privately owned and hasn't always been as open as it should have been in the past, but we're getting there.

"Those companies that have been honest with their stakeholders will emerge stronger. We can't live with everyone on prepayment and it's therefore vital that levels of trust are re-established as soon as possible."

There followed a short presentation by Genpact's vice president of business process re-engineering, Lester D'souza, on the key levers for optimising cash across receivables, payables and inventory. We then returned to a Q&A session with the keynote speaker, conducted by Andrew Morris, director at Santander Corporate Banking.

Much of the discussion concerned how de Klerk incentivised a cash-savvy mindset at a time when his company had imposed a payment and bonus freeze. "You need constant communication," the CFO responded. "When you go through a cash-reduced cycle people become very concerned about the future and you must put a lot of work into keeping them onboard. This can't be entirely finance-driven; all stakeholders need to be aligned. Everyone now recognises the need to be cash-tight and emerge from this cycle in better shape than we entered it. Ensure the relationship between sales and finance is strong and that you're both after the same thing."

In April 2008, German consumer goods giant, Henkel acquired the adhesives business of ICI subsidiary National Starch for €4bn. At this breakfast, Dr Steinebach discussed the transition, challenges and the types of synergies that was created from this transaction.

Following Dr Steinebach's presentation, there was a supporting address by Christian Specht, partner, KPMG, Corpoate Finance and a Q&A session hosted by Andrew Groth of Genpact

Dr Steinebach joined Henkel in 1980 and has been a member of the company's management board since July 2003. Prior to joining Henkel he was assistant professor at the Institute for International and Comparative Law, University of Cologne, Germany.